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Test 2 Macro Flashcards

(92 cards)

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1
Q

what does GDP tell us about the economy

A

since of overall health of economy

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2
Q

GDP

A

the market value of all final goods and services produced within a country during a specific period (typically a year)

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3
Q

What happens to output and income when GDP is high

A

they are high as well

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4
Q

Per capita GDP

A

GDP per person (more accurate)

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5
Q

What are the three uses of GDP data

A

measuring living standards
measuring economic growth
measuring business cycle

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6
Q

inflation

A

the growth in the overall level of prices in an economy

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7
Q

real gdp

A

gdp adjusted for changes in prices

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8
Q

economic growth

A

measured as the percentage change in real per capita gdp

adjusted for population growth and inflation

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9
Q

recession

A

short run economic downturn (6-18 months)

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10
Q

the great recession

A

the US recession from Oct. 2007-June 2009

GDP fell by 9%

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11
Q

business cycle

A

short run fluctuation in economic activity

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12
Q

economic expansion/ economic contraction

A

economy growing faster/slower than usual

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13
Q

services

A

an output that provides benefits without the production of a tangible product
majority of GDP

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14
Q

intermediate good

A

a good that firms repackage or bundle with other goods for sale at a later stage

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15
Q

final goods

A

a good sold to final users

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16
Q

GNP

A

the output produced by workers and resources owned by residents of the nation

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17
Q

What are the five important things that go into how GDP is calculated

A 
counting market values 
including goods and services 
including only final goods 
including goods within a country 
including only production from a particular period
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18
Q

GDP equation

A

GDP=C+I+G+NX

GDP= consumption + investment + government spending + net exports

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19
Q

consumption

A

the purchase of final goods and services by households, excluding new housing
Durable and Non Durable

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20
Q

investment

A

private spending on tools, plant, and equipment used to produce future output
ex: family buying new home, firms buying new factories

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21
Q

government spending

A

includes spending by all levels of government on final goods and services
transfer payments don’t count (welfare)

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22
Q

net exports

A

exports minus imports typically negative for US

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23
Q

real GDP

A

adjusting GDP for price changes

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24
Q

nominal GDP

A

GDP measured in current prices not adjusted for inflation

rises much faster than real GDP

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25
price level
an index of the average prices of goods and services throughout the economy, directly proportional to prices
26
GDP deflator
a measure of the price level that includes prices of the final goods and services included in GDP filter out current prices from the nominal GDP data put in the constant prices for the base period
27
% change in nominal GDP equation
% change in N GDP= % change in real GDP+ % change in price level
28
What are some shortcomings of GDP data
non market goods underground economy quality of the environment leisure time
29
unemployment rate
the percentage of the labor force that is unemployed
30
structural unemployment
unemployment caused by changes in the industrial makeup of the economy
31
creative destruction
occurs when the introduction of new products and technologies leads to the end of other industries and jobs sign of healthy economy
32
frictional unemployment
unemployment caused by delays in match available jobs and workers information ability, government policies, incentives
33
unemployment insurance
a government program that reduces the hardship of joblessness by guaranteeing that unemployed workers receive a percentage of their former income while unemployed
34
cyclical unemployment
unemployment cause by economic downturns most serious type of unemployment unhealthy economy
35
the natural rate of unemployment
the typical rate of unemployment that occurs when the economy is growing normally structural and frictional always present near 5%
36
full employment output (Y)
the output level produced in n economy when the unemployment rate is equal to its natural rate real GDP= Y
37
The unemployment rate equation
U= number of unemployed/ labor force x 100
38
labor force
people who are already employed or actively seeking work
39
who does the unemployment rate not include
retirees, stay at home parents, people in jail, military personnel, children under age 16, full time students
40
discouraged workers
haven't looked for a job in 4 weeks
41
underemployed
part time who want to be full time
42
labor force participation rate
the percentage of the population that is in the labor force | labor force/ population x 100
43
What does the Bureau of Labor statistics do?
measures inflation data
44
Consumer Price Index (CPI)
a measure of the price level based on the consumption patterns of a typical consumer basket
45
CPI equation
basket price/ basket price in base year x 100
46
inflation rate equation
(p2-p1)/p1 x 100
47
Using CPI to equate dollar values over time
price in todays dollars= price in earlier time x price level today/ price level in earlier time
48
Why is it hard too keep up with a typical Basket of goods
substitution changes in quality new products and locations
49
Chained CPI
a measure of the CPI in which the typical consumer's basket of goods is updated monthly
50
shoeleather costs
the resources that are wasted when people change behavior to avoid holding money
51
money illusion
occurs when people interpret nominal change in wages or prices as real change
52
menu costs
the cost of changing prices
53
capital gains tax
taxes on the gains realized by selling an asset for more than its purchase price
54
what are two reasons the government inflates the money supply
large government debts | short term gains
55
loanable funds market
the market where savers supply funds for loans to borrowers
56
interest rate in loanable funds
a price of loanable funds, quoted as a percentage of the original loan amount
57
what is savers interest rate
the return you get for supplying funds | aka a reward
58
interest rate as a cost of borrowing
as interest rates decline more loans are demanded
59
fisher equation
real interest rate= nominal interest rate- inflation rate nominal interest rate= real interest rate + inflation rate the higher the inflation rate the higher then nominal interest
60
what is weak time preference versus strong
weak: patient strong: impatient
61
what happens if the rate of time preferences in society changes
the supply of loanable funds shifts
62
consumption smoothing
occurs when people borrow and save in order to smooth consumption over their lifetime early life: borrowing mid life: saving late life: dissaving
63
dissaving
occurs when people withdraw funds from their previously accumulated savings
64
savings rate
personal saving as a portion of disposable income
65
what factors shift the demand for loanable funds
productivity of capital investor confidence both have positive relationship
66
what is equilibrium in the loanable funds market
interest rate where the plans of savers match the plans of borrowers savings= investment
67
financial intermediaries
firms that help to channel funds from savers to borrowers
68
banks
private firms that accept deposits and extend loans
69
indirect finance
when savers deposit funds into banks, which then loan these funds to borrowers
70
direct fiance
occurs when borrowers go directly to savers for funds
71
security
a tradable contract that entitles its owner to certain rights
72
bond
a security that represents a debt to be paid | direct finance
73
maturity date
date on which the loan repayment is due
74
face value
value of bond at maturity
75
interest rate for bonds equation
face value- initial price/ initial price
76
what kind of relationship do dollar price and interest rate have in bonds
inverse
77
default risk
the risk that the borrower will not pay the face value of a bond on the maturity date greater default risk means higher interest rate on bond
78
stocks
ownership shares in a firm avoids debt unlike bonds own more than 50% majority shareholder
79
secondary markets
markets in which securities are traded after their first sale increased demand for a security lower cost of borrowing
80
treasury securities
the bonds sold by the US government to pay for the national debt
81
securitization
the creation of a new security by combining otherwise separate loan agreements lowers interest rates for borrowers
82
The 3 equations for economic growth
% change in nominal GDP- % change in price level- % change in population nominal GDP growth- price growth real GDP growth- population growth
83
resources
factors of production, inputs used to produce goods and services
84
natural resources
physical land and inputs in or on land
85
physical capital
tools and equipment used in the production of goods and services
86
human capital
the resource represented by the quantity, knowledge, and skills of the workers in an economy
87
technology
the knowledge that is available for use in production, allows us to be more productive while using fewer resources
88
technological advancement
introduces new techniques or methods so that firms can produce more valuable outputs per unit of input
89
institution
a significant practice, relationship, or organization in a society
90
private property rights
encompass the rights of individuals to own property, to use it in production, and to own the resulting output
91
how are taxes efficient
must be high enough to support government but they can't tax activities that are fundamental to economic growth
92
what makes up GDP investment
Business Fixed: Machines, factories, etc. Residential: New homes and apartments Inventory: Things not sold to consumers

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